It may come as a surprise, but did you know that there are actually 30 different levels of credit scores? Despite the wealth of information available on the internet when it comes to finding the best credit score, it's not uncommon for people to become overwhelmed or misled by conflicting information. Fortunately, I am here to help. Allow me to introduce myself, my name is Joe Mahlow, and I have worked in financial literacy and credit repair for fifteen years. My ultimate goal is to provide you with honest and straightforward advice on a variety of topics, including credit scores. I am proud to have assisted over twenty thousand clients in improving their credit scores, and it is my hope that the information I share with you will be just as transformative. So, without further ado, let's dive right into the topic of credit scores.

Contents:

Different Types of Credit Scores

Understanding Good Credit Scores

What Credit Score Do You Need to Buy a House?

What Credit Score Do You Need to Buy a Car?

Tips for Improving Your Credit Score

Tips from Joe to Fix Your Bad Credit

Different Types of Credit Scores

Credit scoring is a critical aspect of evaluating creditworthiness, and it is usually assessed based on two models, the FICO and the Vantage. Even though they both serve the same purpose, some differences exist in how they calculate credit scores.

FICO Credit Score

The FICO credit scoring model is the most widely used method with eight different variants (FICO 2 to FICO 10). Each of the variants yields different credit scores, depending on your credit report. But why are there several FICO models? A purchaser or credit applicant may obtain credit from various lenders. These lenders usually pull different FICO reports based on the loan type. For example, when applying for a home loan, mortgage lenders often request a FICO 5 report, while credit card providers mostly use the FICO 8 report.

The number of FICO models available serves to tailor credit scoring under different contexts. Each of them gives a weight to different credit factors based on the lender's criteria. For instance, the FICO 5 focuses more on a borrower's mortgage history. In contrast, the FICO 8 prioritizes previous credit card history, and the FICO-2 report mainly emphasizes the borrower's auto history.

To get information about your FICO credit scores, sign up for an account on www.myfico.com.

Vantage Credit Score

The Vantage Score is a newer credit scoring model, usually provided for free on credit monitoring websites by the three major credit reporting agencies (Equifax, Experian, and TransUnion). It is a growing competitor to the long-established FICO model in assessing creditworthiness across personal loans and auto lending sectors.

The Vantage model may provide a good general idea of your creditworthiness; however, it is not overwhelmingly relied upon in lending decisions. The precision of a credit score is mostly viewed as how easily you can obtain credit based on that score. Thus, FICO tends to be the most preferred credit scoring model, although this may change in the next five to ten years. Overall the Vantage and FICO scoring models aim to provide the best assessment of creditworthiness based on widely acceptable standards.

Understanding Good Credit Scores

Credit scores are measured by both FICO and Vantage models and can range from 350 to 850. A score of 350 is considered the worst, while 850 is the best score one can achieve. As you go through the process of improving your score, it's imperative to track your progress. Here are some vital score thresholds to keep in mind:

1. A score of 620 or below is classified as bad credit.

You may have adverse credit history, high-balance credit card accounts, or no credit cards at all. Timely payments and ten active revolving credit accounts can help you improve your credit score. With a score of 620, you can qualify for an FHA home mortgage.

2. A score between 640 and 680 is considered fair to good credit.

Scores in this range usually indicate that you have established credit, but you may have some derogatory marks, high balances on your credit cards, or newly opened accounts. However, these factors will only cause a temporary dip in your score.

3. If your score is 740 or above, you have super-prime credit.

This score will help you obtain the best interest rates for most loans. Only 20% of the US population has a credit score of 740 or above. As long as you continue to make timely payments and keep your revolving credit card accounts paid, you are in excellent shape. Congrats!

What Credit Score Do You Need to Buy a House?

Determining the credit score required to buy a home can be challenging, as it depends on the type of mortgage loan you want. Federal regulations and government backing ensure that the criteria and instructions for the majority of mortgage loans are comparable. However, there are differences among the three most common mortgage loan types: conventional loans, FHA loans, and VA loans.

Conventional Loans

Conventional loans are the most popular loans and are typically the best option for saving money, other than VA loans. PMI (private mortgage insurance) is not required, which can increase your down payment or monthly payments. Conventional loans have lower down payment requirements and better interest rates than other mortgage loans and call for a typical credit score of 640 and a debt-to-debt ratio no higher than 43%.

FHA Loans

FHA loans have lower credit score requirements, typically between 580 and 619. Remember that varying lenders provide different loan programs, so shop around for the best financial option if you're within the credit score range limit. PMI coverage for at least 11 years is required for FHA loans and could be an extra expense to your mortgage payment, particularly if you're on a budget. The down payment requirements on an FHA loan are as low as 3.5%, allowing you to enter a mortgage with less money than a conventional loan, albeit with a higher interest rate.

VA Loans

Although there is no technical credit score requirement with VA loans, you have to pre-qualify with evidence of any government-owed past-due debts and previous defaulted loans. You must have served in the US Military for a minimum of 181 days, served 90 consecutive days during wartime, served 6 years with the National Guard, or had a spouse who was in the military and lost their life while on active duty. VA loans typically have the best interest rates and do not need a down payment. Hence, VA loan is an excellent option to give back to our veterans.

What Credit Score Do You Need to Buy a Car?

It is important to understand that your credit history, not just your credit score, plays a significant role in determining your eligibility for a car loan. While a high credit score is favorable, the interest rate for which you qualify depends on other factors, and lenders evaluate applicants' credit histories to assess the risk involved in extending credit. Late payments or prior repossessions can make loan approval challenging. However, subprime lenders will qualify even those with poor credit or a repossession record, but with additional criteria such as a higher down payment and extra fees. Dealers must also pay for some approval risks. To ensure you have more bargaining power when financing a car, it helps to have equity or a downpayment.

New Car Credit Score Range

There is no specific credit score to be approved for a car loan. A score above 680 is ideal, while anything below may invite a higher interest rate due to risk posed to the lender. The interest rate on a loan correlates to one's credit score, as shown in the following examples:

• A score of 720 or above entails an average of $5,500 in interest charges on a loan.
• An average interest of $6,600 for a loan is expected with a 680+ score.
• A score of 650+: loan interest costs reach an average of $8,100.
• A score of 615+: loan interest costs reach an average of $10,200.
• A score of 580+: loan interest costs reach an average of $13,900 and $15,300, respectively.

An improved credit score can save on overall loan interest costs.

Tips for Improving Your Credit Score

Increasing your credit score requires effort and time. It is important to be patient and make wise decisions to avoid worsening your problems. Below are some actions you can take to improve your credit score:

1. Obtain 3-5 revolving credit accounts:

Acquiring revolving credit, like credit cards, will help maximize your credit score. For individuals with limited credit or those looking to rebuild it, large loans may not be easy to obtain. Opening a secured credit card like Open Sky or Credit Builder Card can increase your approval chances. Revolving credit constitutes 30-35% of your credit score and can quickly boost it. Make sure to pay your balance on time and maintain it at $5-$10 for each payment. Limit the use of your credit cards to small purchases.

2. Request a credit limit increase:

If you have active revolving credit card accounts, requesting a limit increase can help raise your overall credit limits and decrease your credit utilization percentage. Different credit card companies have different processes, but if you are unsure, call your credit card company and request a "Credit Limit Increase." A credit card company usually wants to see 7-15 months of excellent payment history on a credit card before agreeing to do this.

3. Keep your balances low:

Ideally, you should keep your credit card balance close to zero. Only make small purchases, and when paying your bill each month, leave a $1-$5 balance on your credit card. If you have high balances, make a plan to pay them down gradually to avoid running them back up. Remember, your credit card spending habits significantly impact your credit score.

Improving your credit score is possible. By following these tips, you can increase your approval chances and improve your chances of being approved for loans, mortgages, and other financial products.

Tips from Joe to Fix Your Bad Credit

Having less than ideal credit is a common problem that many people face. The good news is that if you commit to improving your credit situation by putting in time and effort, you can make significant progress and improve your credit score quickly. Unfortunately, many individuals with bad credit fall into a cycle of feeling like they will never be able to achieve a good credit score. However, if you are willing to prioritize your credit and adjust your spending habits, you can break that cycle. Creating a budget and focusing on fixing any bad spending habits you have is a great first step towards improving your credit score. This article aims to provide you with better insights on how credit works. If you need guidance or help with your credit score, consider reaching out to ASAP Credit Repair USA for assistance.